Measuring the scale of envelope wages: Evidence from Poland

Abstract

AbstractWe develop a methodology for measuring the scale of the unregistered wages paid to staff by employers. We show that the differences in earnings distribution between public‐ and private‐sector employees are not reflected in the distribution of expenditure. Assuming that public‐sector employees do not receive unreported income, this points to undisclosed income in the private sector. After showing that the distribution of income from non‐wage sources does not systematically depend on the sector, we argue that the differences may be attributed to envelope wages. We estimate that 10%–11% of employees in Poland receive envelope wages, which account for around 5% of total earnings.